Opinion of the European Central Bank of 5 July 2011 on the conversion of foreign credit institutions’ branches into subsidiaries (CON/2011/57)
Date: 2011-07-05
Institutions: European Central Bank
Subjects: Poland, banking, credit institution, financial stability, foreign enterprise, national law, subsidiary

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 5 July 2011 

on the conversion of foreign credit institutions’ branches into subsidiaries 

(CON/2011/57) 

Introduction and legal basis 

On  31  May  2011,  the  European  Central  Bank  (ECB)  received  a  request  from  the  Polish  Minister  for 

Finance for an opinion on a draft law amending the Law on banking and certain other laws (hereinafter 

the ‘draft law’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 

Functioning of the European Union and the sixth indent of Article 2(1) of Council Decision 98/415/EC of 

29 June 1998  on  the  consultation  of  the  European  Central  Bank  by  national  authorities  regarding  draft 
legislative provisions1, as the draft law relates to rules applicable to financial institutions insofar as they 

materially  influence  the  stability  of  financial  institutions  and  markets.  In  accordance  with  the  first 

sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council 

has adopted this opinion. 

1.  

Purpose of the draft law 

1.1  The draft law amends, inter alia, the Law on banking of 29 August 19972 and the Law on the bank 

guarantee fund of 14 December 19943. 

1.2  The  main  purpose  of  the  draft  law  is  to  enable  the  transformation  of  a  Polish  branch  of  a  credit 

institution  established  in  another  Member  State  and  conducting  its  business  in  Poland  under  the 

single  passport  into  a  subsidiary  of  the  same  credit  institution.  Such  a  subsidiary  would  be 
established  in  Poland  and  operate  as  a  domestic  bank4  in  the  form  of  a  joint-stock  company  and 

would therefore be subject to supervision by the Komisja Nadzoru Finansowego (KNF, Financial 

Supervision Commission). Furthermore, deposits received by the subsidiary from the public would 

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4 

OJ L 189, 3.7.1998, p. 42. 
As published in Dziennik Ustaw (Dz. U.) of 2002 No 72, Item 665. 
As published in Dz. U of 2009 No 84, Item 711. 
Credit  institutions  registered  in  Poland  are  legally  referred  to  as  ‘domestic  banks’.  The  term  ‘credit  institution’  under 
Polish  law  only  relates  to  European  Economic  Area  (EEA)  credit  institutions  from  outside  Poland.  Non-EEA  credit 
institutions are referred to under Polish law as ‘foreign banks’ (Article 2, Article 4(3), Article 4(1)(1) and Article 4(1)(17) 
to (20) of the Law on banking). 

 
 
 
 
                                                 
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be  covered  by  the  Bankowy  Fundusz  Gwarancyjny  (BFG,  Deposit  Guarantee  Scheme),  which, 

according to the explanatory memorandum to the draft law, ‘may be beneficial from the point of 

view  of  customers,  and  particularly  of  depositors  who  entrusted  their  money  to  the  branch  in 
question’5.  

1.3  The  draft  law  sets  out  the  procedure  to  be  followed  when  conducting  the  transformation,  which 
comprises  the  following  steps6:  (a)  application  by  the  foreign  credit  institution  concerned  for  an 

authorisation to establish, on the basis of an existing branch, a domestic bank in the form of a joint-

stock  company;  (b)  audit  by  the  KNF  of  the  branch  to  be  transformed,  verifying  its  current 

financial condition; (c) grant by the KNF of authorisation to establish a domestic bank on the basis 
of the branch7; (d) contribution in kind by the foreign credit institution of the business of the branch 

to the newly established domestic bank, in exchange for the bank’s shares; (e) registration of the 

new domestic bank in, and deletion of the transformed branch from, the register of entrepreneurs. 

1.4  The following main consequences occur on registration of a new domestic bank in the register of 

entrepreneurs:  (a)  the  new  bank  assumes  all  the  foreign  credit  institution’s  rights  and  obligations 
stemming  from  the  operation  of  the  transformed  branch  (universal  succession)8;  (b)  the  KNF 

assumes  responsibility  for  supervision  of  the  operations  of  the  new  domestic  bank;  (c)  deposits 

accumulated via operations of the transformed branch, and transferred to the new domestic bank, 

become covered by the Polish deposit-guarantee scheme. 

2. 

General observations 

The appropriate time to consult the ECB 

The draft law was adopted by the lower chamber of the Polish Parliament on 10 June 2011. This 

was  shortly  after  the  ECB  had  been  consulted,  resulting  in  the  draft  law  being  adopted  not  only 

before the expiry of the time limit for the submission of an ECB opinion set by the legislator in its 

consultation request, but also before it could take the ECB’s views into account.  

The ECB reiterates that even in cases of extreme urgency national authorities are not relieved from 

the duty to consult the ECB and to allow sufficient time to take its views into account laid down in 

Articles 127(4) and 282(5) of the Treaty. The second sentence of Article 4 of Decision 98/415/EC 

provides that the ECB must be consulted ‘at an appropriate stage’ in the legislative process. This 

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8 

See the explanatory memorandum to the draft law, p. 3. 
See Articles 48p to 48u of the Law on banking as amended by the draft law; see also the explanatory memorandum to the 
draft law, p. 7 to 11.  
In accordance with Article 48p(2) of the Law on banking as amended by the draft law, standard provisions governing the 
establishment  of  banks  in  the  form  of  joint-stock  companies  apply  to  the  establishment  of  banks  on  the  basis  of  an 
existing branch, including in particular the following: Article 30a, which requires that authorisation for the establishment 
of a bank is granted by the KNF; Article 30, which specifies the criteria applied in the assessment of an application for 
the establishment of a bank; Article 37, which specifies the grounds for the rejection of such applications.  
See  Article  48u(2)  of  the  Law  on  banking,  as  amended  by  the  draft  law.  As  a  result  of  the  universal  succession,  the 
newly-established bank assumes, by operation of law, all relevant rights and obligations, including all liabilities, claims 
and related rights, as well as all authorisations, licences and exemptions, unless this is opposed by the relevant issuing 
authorities. 

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implies that the consultation should take place at a point in the legislative process that affords the 

ECB  sufficient  time  to  examine  the  draft  legislative  provisions  and  to  adopt  its  opinion  in  all 

required  language  versions,  and  also  enables  the  relevant  national  authorities  to  take  the  ECB’s 

opinion into account before the provisions are adopted. Article 3(4) of Decision 98/415/EC obliges 

Member States to suspend the process of adoption of draft legislative provisions pending receipt of 

the  ECB’s  opinion.  On  this  occasion,  the  duty  to  consult  the  ECB  at  an  appropriate  stage  in  the 

legislative process has not been respected by the Polish authorities. 

3. 

Specific observations 

3.1  The  restructuring  mechanism  proposed  by  the  draft  law  will  allow  banking  groups  that  have  a 

presence  in  Poland  to  transform  their  branches  into  subsidiary  companies.  The  ECB  understands 

that  such  a  mechanism  will  be  triggered  only  upon  request  from  a  credit  institution  and  will  not 

impede Union credit institutions from exercising their right of establishment in Poland through the 
setting  up  and  operation  of  either  branches  or  subsidiaries.  Opinion  CON/2006/319  addressed 
similar draft legislation enabling the division of banks10. In this opinion, the ECB emphasised that, 

while  there  is  no  specific  Union  legislation  on  the  supervisory  aspects  of  such  restructuring 
operations,  Directive  2006/48/EC11  provides  for  specific  requirements  regarding  supervisory 

approvals of banking activities, which must be continuously applied.  

3.2 

In assessing applications for the establishment of a new bank on the basis of an existing branch, the 
KNF will apply standard prudential assessment criteria12. The draft law adds an additional criterion 

for  rejecting  applications,  according  to  which  a  transformation  should  not  be  ‘significantly 
detrimental  to  the  national  economy  or  to  important  interests  of  the  State’13.  The  explanatory 

memorandum to the draft law justifies adding this criterion in the draft law based on the fact that an 

identical criterion had been established as a ground for the rejection of a supervisory approval for 
the division of an existing bank14. The ECB notes that this broad additional criterion may be seen 

as a general public interest clause, in so far as it does not explicitly refer to any specific prudential 

consideration for the rejection of supervisory approval for the establishment of a bank. The ECB 

understands  that  the  Polish  authorities  may  have  intended  to  introduce  this  criterion  to  address 

threats to financial stability or, more specifically, to the smooth functioning of the national deposit-

guarantee  scheme.  The  introduction  of  such  additional  criterion  in  the  Law  on  banking  has  to 

respect the limits set out by Union law. 

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14  

All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 
See Article 124c of the Law on banking added by the Law amending the Law on banking of 18 October 2006 (Dz. U. of 
2006 No 190, Item 1401). 
Directive  2006/48/EC  of  the  European  Parliament  and  of  the  Council  of  14  June  2006  relating  to  the  taking  up  and 
pursuit of the business of credit institutions (recast) (OJ L 177, 30.6.2006, p. 1). 
See Articles 30 and 37 of the Law on banking. 
See Article 48s(2) of the Law on banking as amended by the draft law. 
See the explanatory memorandum to the draft law, p. 9. The relevant changes had been introduced in the amending law 
of 18 October 2006 after the adoption of Opinion CON/2006/31. 

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3.3 

In  particular,  when  considering  the  further  specification  of  that  additional  criterion,  the  Polish 

authorities  should  carefully  take  Directive  2006/48/EC  into  account.  Directive  2006/48/EC 

provides  that  requirements  laid  down  by  Member  States  in  respect  of  obtaining  authorisation  to 

carry  on  business  as  a  credit  institution  should  respect  the  minimum  harmonised  rules  set  out  in 
Articles 7 to 1215 of that Directive, and in particular the rule prohibiting assessment of applications 

for  the  establishment  of  a  credit  institution  in  terms  of  the  ‘economic  needs  of  the  market. 

Furthermore, the Polish authorities should take into account the judgments of the Court of Justice 
of the European Union regarding the right of establishment specified in Article 49 of the Treaty16. 

The Court has stated, inter alia, that ‘the right of establishment covers all measures which permit or 

even merely facilitate access to another Member State and the pursuit of an economic activity in 
that State’17 and that restrictions on the freedom of establishment, allowed under Article 52(1) of 

the  Treaty,  may  only  be  introduced  pursuant  to  a  legitimate  aim  which  is  compatible  with  the 

Treaty,  justified  by  the  overriding  principles  of  public  interest  and  achieved  through  measures 
proportionate  to  this  aim18.  In  this  last  respect,  the  Court  has  taken  the  view  that  restrictions 
referring generally to ‘national interest’ fail the proportionality test19. The Court has also rejected 

the possibility that Union secondary law provisions safeguarding freedom of establishment may be 

set aside by special rules related to the financial sector introduced in the national law in order to, 
inter alia, ensure the proper operation of the national economy20. 

3.4 

In  view  of  the  above,  the  ECB  invites  the  Polish  authorities  to  further  specify  the  supervisory 

assessment  criteria  introduced  by  the  draft  law  in  connection  with  the  transformations  of  foreign 

branches into subsidiaries, with the view to ensuring compliance with Union law. 

3.5  The ECB emphasises the need to ensure that a branch continues to meet its obligations relating to 

the calculation and holding of minimum reserves following its transformation into a subsidiary. It 

also  reiterates  the  remarks  made  in  the  context  of  the  proposal  enabling  the  division  of  banks, 

particularly  with  regard  to  ensuring  compliance  of  the  Polish  minimum  reserve  framework  with 
Eurosystem requirements21. 

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20  

21  

See Article 6 of Directive 2006/48/EC. 
See in particular Judgment of 13 December 2005 in Case C-411/03 Sevic (ECR 2005, p. I-10805), Judgment of 13 May 
2003 in Case C-463/00 Commission v Spain (ECR 2003, p. I-4581), Judgment of 13 September 2007 in Case C-260/04 
Commission v Italy (ECR 2007, p. I-7083), Judgment of 22 March 2007 in Case C-383/05 Raffaele Talotta v Belgium 
ECR 2007, p. I-2555), Judgment of 11 December  2007 in Case C-438/05 International Transport Workers’ Federation 
and another v Viking Line and another (ECR 2007, p. I-10779). 
See Judgment of 13 December 2005 in Case C-411/03 Sevic (ECR 2005, p. I-10805, paragraph 18). 
See  Judgment  of  11  December  2007  in  Case  C-438/05  International  Transport  Workers’  Federation  and  another  v 
Viking Line and another (ECR 2007, p. I-10779, paragraph 75). 
See Judgment of 11 November 2010 in Case C-543/08 Commission v Portugal (not yet reported), paragraphs 6 and 91 to 
92 (the case considered restrictions to freedom to provide services and freedom of establishment, see paragraph 98 to 99). 
See Judgment of 12 March 1996 in Case C-441/93 Panagis Pafitis and others v Trapeza Kentrikis Ellados (ECR 1996, I-
01347, paragraphs 12 and 46 to 52). 
See paragraph 2.1 of Opinion CON/2007/34. 

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This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 5 July 2011. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

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